negotiauctions

What are Negotiauctions?

Negotiauctions combine the competitive bidding of an auction with the one-on-one dealmaking of a negotiation.

Many (if not most) complex deals between buyers and sellers—from home sales to purchasing auctions to corporate mergers—qualify as negotiauctions.

Negotiauctions give sellers the opportunity to avoid making the difficult tradeoffs of traditional negotiations or auctions— competition versus value creation, for example, or many versus few bidders. In fact, sellers can take the best of both worlds— negotiations and auctions—to ensure they get a great deal.

Negotiauctions have the following features:

1. One-on-one negotiations. At some stage of negotiauctions, the seller engages one or more buyers in private discussions about the asset on the table.

2. One or more rounds of bidding. The seller also pits potential buyers against one another in an auction.

3. Several, but not too many, potential buyers.

Negotiauctions need enough parties to spark an auction but not so many that one-on-one negotiation would be difficult for the seller to manage.

4. Process ambiguity. In a traditional auction, the seller determines the process (whether there will be a single round of bidding or multiple rounds, for instance), and buyers are passive participants. In negotiauctions, by contrast, the process is up for grabs.

Buyers can try to shape the process to their advantage, as in the case of an auction contestant who approaches a seller about negotiating privately to move beyond the single issue of price.

In general, whether you are the process setter or a bidder in an auction that has features of a negotiation, don’t assume that the rules are set in stone. Instead, change the game by thinking about how you can influence the rules, parties, and assets to your advantage.

To improve your skills at managing even the most complex negotiations, download this free special report, Managing Multiparty Negotiations, from Harvard Law School.

The following items are tagged negotiauctions: